India’s fertiliser sector faces profitability and liquidity pressures in FY27 as the West Asia conflict drives up gas and raw material costs, although continued government support is expected to cushion the impact, according to India Ratings and Research (Ind-Ra).
The agency has maintained a neutral outlook on India’s fertiliser sector for FY27, warning that elevated input prices caused by the ongoing West Asia conflict could weaken the credit profile of fertiliser companies despite continued government subsidy support.
It said the government’s FY27 fertiliser subsidy allocation of Rs 1.71 trillion could fall short because of higher natural gas and nutrient-based fertiliser input costs, likely necessitating additional budgetary support during the year.
The subsidy allocation for FY27 is lower than the revised estimate of Rs 1.864 trillion for FY26, reflecting expectations of stabilising natural gas prices for urea production. However, escalating geopolitical tensions in West Asia have sharply increased prices of regasified liquefied natural gas (RLNG) and key raw materials used in nutrient-based fertilisers (NBS), India Ratings said.
“India Ratings expects the West Asia conflict to have some impact on the profitability and credit profile of fertiliser players in FY27, but would be supported by liquidity,” Pritha Preshi Sharma, associate director, corporate ratings at India Ratings, said in the report.
The agency said it expected the government to continue providing supplementary subsidy allocations, as seen in recent years whenever global raw material prices surged. The latest such support was an additional subsidy package of Rs 3,500 per tonne for di-ammonium phosphate (DAP) manufacturers, which India Ratings said would continue in FY27 as international DAP prices remained elevated.
India’s fertiliser sector remains heavily dependent on imported LNG, with RLNG accounting for 85 per cent of the sector’s total gas consumption in FY26, compared with 86 per cent a year earlier.
India Ratings said average pooled gas prices were likely to remain elevated in FY27 after averaging USD 13.4 per million British thermal units during the first nine months of FY26, mainly because of disruptions to LNG supply routes from West Asia amid the Iran-US-Israel conflict.
More than half of India’s LNG imports pass through the Strait of Hormuz, a critical shipping route affected by the conflict. The government had earlier restricted RLNG supply to urea plants to 70 per cent of their requirements, but this has since been increased to 90-95 per cent, the report said.
The agency also highlighted sharp increases in international prices of raw materials used in NBS fertilisers. Average prices rose to USD 1,189 per tonne, USD 188 per tonne and USD 417 per tonne, respectively, compared with FY25 averages of USD 977 per tonne, USD 172 per tonne and USD 157 per tonne.
The increases were driven by disruptions in shipping through the Strait of Hormuz, refinery outages and lower export quotas from major suppliers such as China, even as global demand remained strong, the report added.
India Ratings said EBITDA margins for NPK fertilisers were likely to remain subdued in FY27 because of rising input costs and delays in revisions to NBS subsidy rates, while farm gate prices were expected to stay largely stable.
Companies with backward integration into phosphoric acid and sulphuric acid production would be better positioned to withstand margin pressure than firms heavily reliant on imports, it added.
The agency also warned that higher insurance and demurrage costs for imported NPK fertilisers could weigh on profitability, depending on whether the government reimburses those expenses.
For urea producers, India Ratings said higher gas prices could increase subsidy requirements and working capital needs, while delays in subsidy revisions could temporarily strain liquidity.
However, larger fertiliser companies with stronger balance sheets and sufficient working capital limits were expected to manage the pressure better than smaller firms, the report said. |
